Accepting Credit Cards: A Small Business Guide

Businesses can no longer get by without accepting some form of plastic: By 2017, just 23 percent of all point-of-sale purchases are expected to be made with cash, according to a study by market research firm Javelin Strategy & Research. That means more than three-quarters of transactions will be conducted with credit and debit cards.

Businesses that only accept cash will quickly find themselves losing sales to competitors that are equipped to handle credit and debit card payments.

While transitioning from a cash-only model to one that allows consumers to pay with plastic might seem like a difficult task, there are a number of services that make it rather simple. Whether it's one-stop shops like merchant account services or mobile payment processors that allow businesses to conduct transactions from their smartphones, giving customers payment-method options has never been easier.

Editor’s Note: Trying to choose a credit card processor? If you’re looking for information to help you choose the one that’s right for you, use the questionnaire below to have our sister site, BuyerZone, provide you with information from a variety of vendors for free:

To help small businesses get started, Business News Daily has created a complete guide on all the different options available.

Merchant Account Services

One of the easiest options for businesses that want to accept credit or debit cards is to employ a merchant account services provider, a one-stop shop for businesses' plastic payment needs. A merchant services provider is typically a bank or other financial institution that gives businesses the tools, including special bank accounts and point-of-sale terminals, they need to start accepting credit cards or debit cards.

How merchant account services work: A merchant account services act as a middleman between the business and the customer's credit card company or bank. Merchant account services process payments and make sure the money is appropriately withdrawn from a credit card accountand placed into the business's merchant account. Once the money clears all of the processing protocols, it can be transferred from a merchant account to the business's regular bank account.

Who should use it: Merchant services providers are an option for nearly all types of businesses, including brick-and-mortar, mobile and online businesses.

Merchant accounts: The merchant services provider usually, but not always, offers merchant bank accounts that allow debit and credit card payments. These accounts act as a holding location for the debit and credit card payments a business receives. Once the funds have been approved, the merchant services provider transfers the money, minus its commission, to the business owner's bank account. When opening a merchant account, it is important to ensure the merchant services provider offers the type of merchant account that is needed, which is based on the type of business being run. Types of merchant accounts include the following:

Retail merchant account:This option is typically chosen by businesses that operate in a storefront location, where the customers' debit and credit cards are physically swiped through the payment terminal.

Internet merchant account: This type of account is for businesses being run online. It allows businesses to collect and process credit and debit card information from their e-commerce website.

MOTO (mail or telephone order) merchant account: These accounts are for businesses that operate by taking payments via the telephone and/or direct mail.

In addition to the payment-processing services and merchant accounts, merchant services providers offer many other tools for businesses — including the physical equipment needed to accept debit and credit cards, such as in-store point-of-sale swipe terminals, and a number of fraud and security measures.

Equipment: Merchant services providers offer businesses a variety of equipment needed to accept debit and credit cards, including point-of-sale terminals, simple swipers, PIN-pad terminals and wireless terminals. The majority of merchant services providers give businesses the option to rent or buy the equipment. Business owners can also purchase the equipment from a source other than the merchant services provider.

Cost: While merchant services providers do cover all credit and debit card needs for a business, it comes at a cost. Business owners should expect to pay numerous fees each month and per transaction for the ability to accept credit and debit card payments. Typically, average fees include the following:

Since the rates can vary greatly among providers, it is important that business owners accepting credit and debit cards for the first time shop around to ensure the best deal.

[For a side-by-side comparison of the best credit card processing services and their costs, visit our sister site Top Ten Reviews.]

Security: Merchant services providers should adhere strictly to the Payment Card Industry (PCI) Data Security Standard, the debit and credit card industry's rules and regulations governing how credit card information should be handled, used and stored. The standards set the framework for prevention, detection and reaction to security incidents. Businesses that don't comply with the PCI security standards face significant fines from the companies, such as Visa and MasterCard, whose cards they accept.

Pros and cons: The benefit of using a merchant services provider is that it can fulfill a business's credit card acceptance needs on its own. They also provide necessary tools, such as merchant account management and fraud protection. As an all-in-one solution, however, the main drawback is its costs, which is one of the reasons some businesses don't accept credit cards. Businesses should do their research and make sure they get the most cost-effective merchant account services provider that is best suited for their needs.

What to look for: When deciding among the dozens of merchant services providers, there are a number of factors business owners must consider, including how difficult it is to be approved, the startup and monthly costs, the equipment offered, and the customer-service options provided. For businesses that want to sell products or services from their website, it is important to make sure the merchant services provider has all the Internet-based features, such as virtual terminals and payment gateways, that will be needed.

The best: Our sister site Top Ten Reviews has done in-depth reviews of credit card processing services. Here are their top three merchant services providers:

Is your business always on the go? Do you accept payments in the field or at trade shows and other events? Or would you simply like to be able to accept payments from anywhere in your store? Mobile credit card processors provide businesses with the tools they need to turn their iPhones, iPads and other smartphones and tablets into payment terminals, allowing them to take payments anywhere there is a mobile service.

Who should use it: Mobile credit card processors are best suited for merchants that want to be able to accept credit cards anytime, anyplace. Some examples are repairmen, food trucks and street vendors, as well as brick-and-mortar stores that want the option to accept credit and debit cards away from the cash register.

Merchant account: Just like merchant services providers, mobile credit card processors have their customers set up a merchant account to receive credit and debit card payments. The only difference is that these accounts can receive and process payments wirelessly.

Equipment: Mobile businesses need their own equipment to swipe credit cards, just as retail stores do. To accept credit cards via mobile devices, you will need a compatible smartphone or tablet — typically iOS or Android — a card reader that plugs directly into the device, and the accompanying app from the provider. The smartphone or tablet then becomes a credit card payment terminal, complete with a swiper and other tools as a regular register.

Cost: Mobile credit card processors have a fee structure similar to that of regular merchant services providers. Some costs include the following:

Security: In addition to obeying the PCI Data Security Standards, the best mobile credit card processors use websites that have both Secure Sockets Layer (SSL) protocol and encryption keys. In addition, the individual apps the business owner uses to accept the debit and credit cards often are password-protected and include additional safety measures in case the mobile device is lost or stolen.

Pros and cons: The ability to accept credit cards anywhere benefits both businesses and consumers. Not only does it promise significant revenue streams, but the convenience also enables businesses to provide better and faster customer service. By having mobility options, they're free to collect payments from anywhere in the store — think Apple and Nordstrom — not just at the cash register. The major drawback is the fees. Business owners need to weigh their need for accepting credit and debit cards wirelessly versus the cost to do so. One important consideration is your customer base — if there aren't many customers who want to make mobile debit or credit card purchases, the added cost of mobile credit card processors may not be worth it.

What to look for: There are a variety of mobile credit card processors, so it is important to compare the options before choosing one. Important considerations include monthly and individual transaction fees, and the type of equipment the processor offers. Whether it be an iOS, Android or BlackBerry device, it is critical for mobile businesses to make sure the equipment the mobile credit card processor provides is compatible with the type of mobile device they use. Among the transaction features mobile business owners should look for are the ability to capture signatures directly onto a mobile device and calculate sales tax, accept tips, manage customer info, and email or text receipts to customers.

The best: Our sister site Top Ten Reviews has done in-depth reviews of mobile credit card processors. These are the service providers they rank as the best:

Small businesses that don't want to deal with merchant services providers have another option in the form of third-party processors that allow for online credit card processing. Online credit card processors handle all of a business's debit and credit card services online, without the need for a merchant account. In addition to offering online businesses the ability to place payment buttons directly on their website, many third-party providers now offer mobile card readers that can attach to smartphones and other mobile devices for in-store purchases, many of which also capture signatures right on the device. With this relatively new credit card payments solution, third-party providers are now a possibility for many types of companies, rather than just online businesses.

Who should use it: Any type of business — including brick-and-mortar, mobile and e-commerce businesses — can use third-party providers. They are best suited for businesses that either have bad credit or don't do many credit and debit card transactions each month.

Cost: As with other credit card payment processors, the cost of using third-party online credit card payment processors can vary greatly. One of the reasons many small businesses like third-party processors is the lower setup and monthly fees. The transaction fees, however, are typically higher than with merchant services providers. Most third-party processors have a tier system, in which transaction fees are higher on smaller amounts of monthly sales and go down as monthly sales go up.

Security: Like mobile credit card processors, third-party providers abide by the PCI Data Security Standards and use websites that feature SSL encryption, which provides an extra layer of protection for sensitive credit and debit card information.

Equipment: The only equipment needed for brick-and-mortar stores wanting to use a third-party processor is a mobile card swiper that can easily connect to a smartphone or tablet. E-commerce businesses just need a website with the necessary payment buttons, shopping cart or checkout systems for customers to make purchases.

Pros and cons: The major benefit of using a third-party processor is that businesses don't need to get merchant services approval. For entrepreneurs with bad or no credit, finding a merchant services provider that will accept them can sometimes be a difficult process, making online credit card processors a great alternative. Setup is also fast; it can be ready within a day or two. There are several disadvantages, however. In addition to transaction fees that are higher than those of most merchant services providers, there is an increased chance that a customer will dispute the charge. This is because the name of the third-party processor — not the business — shows up on their monthly credit or debit card statement. For online businesses, some third-party processors reroute the customer to their website — an extra step that often dissuades customers from continuing with their purchase.

What to look for: One of the most important things to consider when choosing a third-party processor is the price. Since both the monthly and transaction fees can vary greatly, business owners need to devote some time to researching all the options to determine which one is most cost-effective, based on their monthly sales.

The best: Business owners have some excellent options for third-party processors. The most popular is PayPal, which offers businesses four types of credit and debit card acceptance plans depending on their needs. Other top third-party processors include Square, which offers a flat monthly fee, and Google Checkout, which offers online and in-store options. Our sister site Top Ten Reviews also has done in-depth reviews of online credit card processors. Here are their top online credit card processors:

Editors Picks

Chad Brooks

Chad Brooks is a Chicago-based freelance writer who has nearly 15 years experience in the media business. A graduate of Indiana University, he spent nearly a decade as a staff reporter for the Daily Herald in suburban Chicago, covering a wide array of topics including, local and state government, crime, the legal system and education. Following his years at the newspaper Chad worked in public relations, helping promote small businesses throughout the U.S. Follow him on Twitter.

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